Valuation of the Prepayment Option of a Perpetual Corporate Loan

Figure 6

The price of the prepayment option 𝑃_Λ^∗(𝜆) (solid line) and the payoff 𝜒(𝜆) (dashed line) as a function of the intensity 𝜆. (a) Regime 𝑋=𝑒₁; (b) regime 𝑋=𝑒₂. For each regime two regions appear: the continuation region 𝜆>Λ^∗_𝑖 and the exercise region 𝜆≤Λ^∗_𝑖.

(a)

(b)